Japanese ODA to fund Myanmar’s infrastructure

Japanese finance minister Taro Aso during a visit to the Thilawa industrial zone on January 4. (AFP)

The Japanese government will lend official development assistance (ODA) to Myanmar, implement a plan to cancel national debt and help complete the Thilawa special economic zone, Japanese officials announced in Yangon last week.

On January 3, Japan’s former prime minister and recently appointed finance minister, Taro Aso, met with President U Thein Sein and senior government officials in Nay Pyi Taw to discuss bilateral economic relations.

According to Reuters, Mr Aso reaffirmed an earlier promise to waive part of Myanmar’s US$5.74 billion debt to Japan. He said that the Japanese government would absolve about $3.36 billion of the debt in two phases throughout 2013, while a consortium of private Japanese banks led by Mitsubishi UFJ Financial Group would issue a loan for the remaining $2.24 billion.

Masaki Takahara, executive managing director of Japan External Trade Organisation (JETRO) in Yangon, said writing off the debt is a necessary step to restart loans to Myanmar. He said these loans will be vital in the investment and implementation of new infrastructure products.

The Japanese government plans to loan the country $56.1 million this year in ODA and plans to allocate $22.4 million to infrastructure projects throughout the seven states and regions, Mr Takahara said. He said that $11.2 million will be allocated to the rehabilitation of existing power plants and $22.4 million to the completion of the Thilawa SEZ outside of Yangon.

Although a Memorandum of Cooperation between Japan and Myanmar on the construction of the Thilawa SEZ had been postponed last year, Mr Takahara said it was signed last month. The MoC will pave the way for building joint-ventures between the countries’ private consortiums, he said.

“As [JETRO] is an organisation that promotes Japanese trade and investment, we have been trying to invite Japanese investment towards Myanmar. But the lack of proper infrastructure is an obstacle for new investment,” he said.

Mr Takahara said the completion of the Thilawa SEZ will continue towards solving this obstacle, as the project aims to reduce electricity cuts and provide Yangon with an international-standard industrial park.

Myanmar and Japan have had two official consultations over Japan’s ODA for sustainable economic development in Myanmar, Xinhua reported last December.

The first consultation was in 1998, when the Japanese government granted Myanmar a loan for the Yangon International Airport; the second was in 2002, when the Japanese government granted a loan for the renovation of the Baluchaung hydro-electric power station.

Ichiro Maruyama, minister counselor of the Japanese embassy to Yangon, said that future ODA will support the development of infrastructure, including electricity, transportation and IT.

“If the [Japanese] government wants to build an electricity plant, the electricity only distributes to the economic zones and not to the people living in the area. We can’t call that ODA. ODA is meant to help all people, not just an industrial area,” Mr Maruyama told The Myanmar Times.

Mr Maruyama said banking is vital to Japanese corporations’ investment in Myanmar. In December 2012, the Bank of Tokyo-Mitsubishi UFJ and Co-operative Bank signed a Memorandum of Understanding, while Kanbawza Bank signed an MoU with Sumitomo Mitsui Banking Corporation. Under the agreements, the Japanese banks will provide the domestic banks with technical assistance as they gear up for Japanese investment.

“Japan lost touch with Myanmar many years ago and we are ready to help. Myanmar is now in its take-off period with the economy. Japan is indebted to Myanmar because of World War II, so now it’s our time to give back to the economy,” Mr Maruyama said.

U Set Aung, deputy minister for National Planning and Economic Development, told businessmen investing in the Thilawa SEZ that Myanmar is yet to guarantee credit for small- and medium-sized enterprises. The comments were made during a workshop at the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) on January 9. However, he said the government can ensure credit for domestic business when they borrow from the bank.

“When the Japanese government provides us with ODA, domestic investors can run their businesses well, with very low interest rates at 0.01 percent,” he said.

According to the Directorate of Investment and Company Administration, Japanese investment to Myanmar stands at about $246 million. The investment stems from 29 projects to date comprising manufacturing factories, banking and the Thilawa SEZ.